The State of Pennsylvania's Forest Economy
Posted: September 16, 2009
16 , 2009- For Immediate Release
Contact: Allyson Muth, Phone: 814-865-3208, E-mail: firstname.lastname@example.org
The State of Pennsylvania's Forest Economy
Written by Michael Jacobson, Phone: 814-865-3994, email@example.com
Forests are not exempt from the ongoing financial crisis. Pennsylvania's forest products industry clearly links to the general state of the economy as lumber, furniture, components, and cabinets depend on housing starts. Most wood-related mills in Pennsylvania have reduced or closed operations.
As an indicator of how bad things are visit Penn State's Timber Market Report at http://extension.psu.edu/timber-market-report. Stumpage prices for most species are less than half what they were a few years ago. Across the US and globally, the state of the forest products industry is similar. The good news is that there are signs of recovery -- albeit slow. Experts predict a year or so before we are, pardon the pun, out of the woods.
Fortunately, forest landowners have the option of waiting until markets for their trees rebound. Unlike like annual crops or dairy farmers, forest landowners do not have to harvest their product at any specific time. However, growing hardwood timber takes eighty or more years in Pennsylvania, and many of our forests are at that age. Therefore, some landowners may be facing planning harvest and regeneration decisions for their forest at a time when market prices are down. Because it takes so long to grow a forest and landowners have incurred carrying costs, it makes sense for landowners to do a little analysis to understand financially optimal harvest decisions.
While the economy is down there are emerging opportunities such as bioenergy, natural gas, and carbon offsets. High energy prices in 2007/2008 sparked interests in renewable energy and the potential of woody biomass as a viable alternative for heating, power, and ultimately ethanol (gas). The newfound interest in the Marcellus natural gas shale formation, underlying two-thirds of Pennsylvania, is another income opportunity for thousands of forest landowners. As the US Congress is poised to address the climate bill, forest landowners are in line to capture income from selling carbon credits to polluters. These emerging opportunities are not without risk, and caution is the operative word as these alternatives evolve.
Any decision a landowner makes, whether it is harvesting, reforesting, fencing, selling carbon credits, or gas leasing, has tax implications. As most people are pinching pennies, every taxable dollar saved from Uncle Sam is a dollar earned. With little effort, there are numerous ways forest landowners can take advantage of incentives and deductions provided by the IRS. Every forest landowner should know about concepts such capitalization (establishing basis), deductions/expenses, capital gains, reforestation tax incentives, cost share programs exclusions, and conservation easements.
In addition to tax planning, since the average age of forest landowners in Pennsylvania is about sixty, it is critical to consider a succession plan for the property. Federal estate taxes are still important for many landowners, especially if Congress doesn't act soon. It is important for landowners to understand when to gift or pass on land to heirs. The wrong decision could have unintended consequences. Opportunities that may reduce consequences include stepped up basis, estate tax credits, marital deduction, extensions and deferrals and special use valuation.
What does the current economic outlook and emerging markets mean for forest owners, forestry professionals, and industry? First it suggests landowners need good timely advice on their options so as to make wise decisions about their property and resources. Forestry professionals and their advisors (e.g., accountants, financial advisers, attorneys, etc.) need up-to-date information about the forest economy.
In October and early November, Penn State Natural Resources Extension is offering workshops throughout the state on forest taxes, forest finance, and estate planning. All the above mentioned issues and more will be discussed. You can find information on the forest taxes and finance meetings at: http://rnrext.cas.psu.edu/pdfs/TaxFinance2009.pdf. Information on the estate planning sessions in Mercer County can be found at: http://rnrext.cas.psu.edu/pdfs/2009ForestEstatePlanningFinal.pdf.
The Pennsylvania Forest Stewardship Program provides publications on a variety of topics related to woodland management for private landowners. For a list of free publications, call 1-800-235-WISE (toll-free), send e-mail to firstname.lastname@example.org , or write to: Forest Stewardship Program, Forest Resources Extension, The Pennsylvania State University, 320 Forest Resources Building, University Park, PA 16802. The Pennsylvania Bureau of Forestry and USDA Forest Service, in partnership with the Penn State's Forest Resources Extension, sponsor the Forest Stewardship Program in Pennsylvania.
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